PRACTICES OF SAVINGS AMONG STUDENTS

Beatrice Anak Wong

He Corporate Master of Business Administration

79 2013
S3
8369
2013
 Pusat J(hidmat M a kJ
VNIYERSm /VI u • Umat Akademik
IYUUd\.¥SIA SARAWAK

PRACTICES OF SAVING AMONG STUDENTS

P.KHIOMAT MAKLUMAT AKAOEMIK

11111 1IIIIIliITIIIIIII
1000246889
III

BEATRICE ANAK WONG

11031900

A Research Paper Submitted in Partial Fulfilment of

the Requirement for the Degree of

Corporate Master in Business Administration

Faculty of Economics and Business

UNIVERSITY MALAYSIA SARA WAK
(2013)

 APPROVAL PAGE

I certified that I have supervised and read this study and in my opinion it conforms to

acceptable standards of scholarly presentation and is fully adequate in scope and quality as a

research paper for the degree of Corporate Master in Business Administration.

Name: Professor Dr. Abu Hassan Bin Mohd Isa

Supervisor

This research paper was submitted to the Faculty of Economics and Business, UNIMAS and

is accepted as partial fulfillment of the requirements for the degree of Corporate Master in

Business Administration.

Professor Dr. Shazali bin Abu Mansor

Dean, Faculty of Economics and Business

UNIMAS

 STATEMENT OF ORIGINALITY

The work described in this Research Paper, entitled

"PRACTICES OF SAVING AMONG STUDENTS"

is to the best of the author's knowledge that of the author except

where due reference is made.

16 August 2013

Date BEATRICE ANAK WONG

11031900

Pu~at Khidmat Maklurnat Akadcmik

{lNIVEHSlTl MALAYSIA SA AWAK

ABSTRACT

(ThiS research explores the saving practices among students and the purpose or goals of their

saving. The combination of respondents involved students from secondary and college or

universities level. There were some students at the secondary level have scholarship and at

the college or university, there were students who have allowance (especially students at the

Institute of Teachers Education) and students have education loan (PTPTN). The

combinations of these statuses give clearer views and understandings to other readers and

would be also useful for students in the futurV

I
This study used questionnaire-based surveys to get information and data from students. Data

collected from 70 students at the secondary level and 230 students at the college or university

level, totalling 300 students overall.

The results revealed that the saving practices are increased with the college age, which

students at the secondary level have less saving practices and less responsibility to control

and manage their expenditure. But at the college age, students have better saving practices,

budgeting and tracking their spending more regularly. Furthermore, they have more banking

options which enable them to control their cash outflow thus have more experienced in

dealing with money. Financial knowledge help to guide and improve their saving practices

which require much effort and discipline.

The finding also indicated that saving for retirement period was students' priority. Majority

of students were aware that it is very extremely important to save for retirement and that the

age option of retirement give students clearer understanding to save at the earlier age and not

saving only when they become employees.

5
Several implications emerge from this study, that student at the lower level have many

weaknesses towards saving practices and their saving behaviour were mostly influenced by

their parents. Additionally, educators at schools have less effort and effective teaching

method to teach and improve students at schools on saving practices.

Therefore, the recommendations suggest that curriculum at schools should introduce the

financial management courses for students to expose them with the world of money

management. This could help to guide and encourage students to save at the young age.

Parents and educators should play an important role by equipped themselves with money

management practices and help to establish or organise more financial seminars and

workshops. It is hoped that this study would give advantage not only for students but parents,

educators and other readers.

 ACKNOWLEDGEMENT

First of all, I would like to express my appreciation to my supervisor, Professor Abu Hassan,

for his advice, guidance and his great encouragement. I am very happy to have the

opportunity to complete this study under his supervision. I would also like to thank our

course coordinator, Dr. Mahani Bin Mohamad Abdu Shakur, for her advice and support,

especially during the early stages of this study. Many thanks to Prof. Abu Hassan and Dr.

Mahani for their assistances and having faith in me to complete this study.

I would also like to express my appreciation to my friends, Sherryline Entia Buja (SMK

Selirik Kapit), Shirley Empen (IPO Campus Miri), Jani Leburn (IPO Sultan A.Halim) and

Ardiles Anthony (College Technology Sarawak Kuching) for their help to distribute the

questionnaire surveys and help me to carry out data collection.

Lastly, to all survey participants in this study, I gratefully acknowledged your kind

participation.

 Pusat Khldmat Maklumat Akademlk

UNlVERSm MALAYSIA SARAWAK

TABLE OF CONTENTS

Page

Approval Page 3

Statement of Originality 4

Abstract 5

Acknowledgement 7

CHAPTER I: INTRODUCTION

1.1 Introduction 10

1.2 Problem Statement 11

1.3 Objectives 15 12

1.4 Scope of the Study 16 13

1.5 Sifnificant of the Study 17 14

CHAPTER II: LITERATURE REVIE.W

2.1 Factors Influencing Students to Save 19 16

2.1.1 Financial Knowledge 16

2.1.2 Parent's Responsibilities 17

2.2 Theory of Saving Behaviour 18

2.2.1 Effect of Financial Management on Saving Behaviour and Financial Problem 18

2.2 .2 Income and Saving Behavior 19

2.3 Sources of Money for Saving 20

2.3.1 Scholarship and Education Loans 20

2.3.2 Allowances 21

2.4 Purpose of Savings 22

 2.4.1 Emergency Times 22

2.4.2 Savings For Education 23

2.4.3 Savings For Retirement 24

CHAPTER III: HYPOTHESES DEVELOPMENT

3.1 Hypothesis 1 26

3.2 Hypothesis 2 28

CHAPTER IV: RESEARCH METHODOLOGY

4.1 Introduction 29

4.2 Research Design: Sampling 29

4.3 Development of the Questionnaires 30

4.4 Structure of the Questionnaire 31

CHAPTER V: DATA AND RESULTS

5.1 Data Analysis: Section A 35

5.2 Data Analysis: Section B 38

5.3 Data Analysis: Section C 44

5.4 Section C: SUMMARY 52

5.5 Data Analysis: Section D 54

5.6 Section D: SUMMARY 60

5.7 Implications and Recommendations 61

5.8 Conclusion 63

5.9 Limitations of the Study 64

REFERENCES 66

Appendix 1 & 2 69

List of Tables 75

List of Figures 76

 CHAPTERl

INTRODUCTION

1.1 Introduction

"Savings" are usually put into the safest places, or products, that allow us to access our

money at any time. The recent economic slowdown has changed our economic environment,

and the way people think about financial issues. Students face many hard financial decisions.

Error· in money management can impact them long after graduation. Many students end up

making some costly money mistakes, thus these mistakes can actually cause damage that

lingers for decades (Xiao et aI., 2007). As a young adult they need to figure out how to pay

for college, earn some spending money, and still get a good education.

While students are in schools and maybe even right after they graduate, they are going to be

on a tight budget. It can be depressing and frightening to realize that they do not make

enough money to cover their monthly expenses. Many students are struggling to find decent

jobs after graduate and payoff their debt. These contribute to the increased in loan default

cases of the National Higher Education Fund Corporation or known as PTPTN. By the year

2005, PTPTN has reported a deficit of RM7 billion (US$2.2 billion) due to low rate of loan

repayment. In 2011, it was reported that 132,801 borrowers of PTPTN have been blackHsted

due to failure ofloan repayment (The Star, 2011).

There also a serious problem in credit management among college or university students as

they have easier access to financial sources such as credit and debt (Peng et aI., 2007). If a

utility bill or a credit card payment is missed or paid late, their credit rating may suffer. After

graduation, a poor credit report can hinder the process of renting an apartment or applying for

a car loan. If students mishandle their finances while in college or university, it may have a

10

negative impact long after he or she graduates. In Malaysia, it was reported that 50% of credit

card holders who declared bankrupt are below 30 years old (Ng, 2009; The Star, 2010).

The number of students experiencing financial difficulties has increased significantly 10

recent years and is likely to continue doing so. This paper sets out to identify and explore the

best and appropriate saving practices amongst college or university students. This paper is not

just exploring the saving practices, but to identify the main purposes of savings by students. It

will provide a better understanding for students regarding his or her financial situation. The

finding of the paper can provide an excellent opportunity and guidance for students to

develop their financial skills that will benefit them for the rest of their life.

1.2 Problem Statement

The problem of this research is to identify and explore the saving practices among students.

Adam Davidson, New York Times Magazines column writes, "savings have fallen steadily

for more than 30 years, from a high of nearly .12 percent of income." Lack of parent savings

for college is an access issue for many students. A new report from the EARN Research

Institute outlines the results that 59 percent said one reason they (parent) are not saving

because they are "unsure of the best way to save or how to get started". This problem had

caused their children (students) depend too much on education loans. Students' access to

financial resources, even loans and debt, gives them the opportunity to spend money on basic

and luxury needs (Leila Falahati et tal., 2011). Increased cost of living becomes a factor for

the need to have good saving practices. In education, college or university tuition and fees

have generally been rising around the world. In 2010, Britain allowed universities in England

to increase undergraduate tuition to as much as £9,000 a year, about triple the previous rate.

11

College or university students do not have proper finance skills. A new study from the

University of Arizona and the National Endowment for financial Education which was

released in April 2009 showed that students received an "F" grade for money management

skills. And almost two and a half years later, the survey shows students ability to handle

money has declined by 7 percent. The expansion of the consumer market and marketing

activities, makes it harder for individuals to cope with the market's increasing demand for

their money (Masud et aI., 2004).

The lack of financial knowledge and education leads students to face financial problems.

Some courses or programmes provide financial educations are not effective and inadequate

for students to learn and improve their money management. (Croy et aI., 2010) said many

students experience financial hard times when they finished their studies, finding a job and

when they get older because they never got the facts on saving. They think that saving is

something that they do not need to consider right now.

A re earch is therefore necessary in order to reach reasonable and effective findings. The

find ings would benefits students to achieve financial success.

1.3 OBJECTIVES

1. The specific objective is to identify and explore the saving practices amongst

secondary and college or university students.

2. To identify the main purposes of saving by students.

12

1.4 SCOPE OF THE STUDY

This study focuses on university students from University Technology Sarawak in Kuching

and students from two colleges of Institute of Teachers Education in Miri and in Sungai

Petani Kedah. The sample will comprised students randomly in the university to answer the

questionnaire regardless which semester are they in. The researcher chooses this university

because the majority of the students are Malays and Bumiputera groups and majority of the

students have an education loans and monthly allowance, especially students at the Institute

of Teachers Education. The researcher would combine all respondents from the three institute

of higher learning as one sample of college or university level. The results later can be a

guide tor other university students regardless their ethnics.

Apart from that, this study will involve secondary school students (Form Six, Upper and

Lower Class) from Sekolah Menengah Kebangsaan Selirik Kapit. The majority students are

Iban and this school located in rural Kapit area. As this group are pre-university students, it is

very essential to study and explore their savings practices when they still in school. This

result can be used as their guidance to learn and understand the important of savings practices

as a preparation for them to enter new campus life. This meant that those students will

manage their own finance matter and not more depend on their parents. And this will prove

that savings practices are important and useful for student to prepare themselves in future.

13

I I
1.5 SIGNIFICANT OF THE STUDY

This research is very important because to date there is no research on this topic. Actually,

there was a research done by lariah M. from University Putra Malaysia on 2011 but the paper

focuses on financial practice and problems of the elderly in Malaysia. There also a research

done by Chor-Foon Tang from Media Utara Resources on 2008 which that paper focuses on

the relationship between savings behaviour and its determinants in Malaysia.

Many people know that lack of savings is a very serious problem amongst students in our

country. Students are very weak in manage their money. Sometimes students not planning

their budget effectively especially new col1ege or university student. They always makes

wrong decision when it comes to buy or purchase what their wants and needs. Students also

often influenced by their friends. We need tomorrow' s generation of young consumers to be

able to make critical purchasing decisions and understand how personal finances affect other

areas of their lives.

The scholarship and education loans provided for students caused most parents feel that it is

not important for them to make savings for their children college tuition and university fees

(Webleyet ai., 2006). While the great cost of a college education should not be entirely the

responsibility of parents, any amount that parents can set aside for their children can decrease

the amount the student might have to take out in loans or cover with other funding. Some

parents never teach their children to save and manage their money wisely at younger age.

Apart from that, the educators are too depends on the courses or programmes especially in

financial education but not try to encourage their students to practice it in the real life.

Therefore, this research will benefit the educators by exposing students to more practical

teaching method especially in finance education.

14
The fmdings acquired from this research would certainly benefit many individuals especially

students and group of people in our country and elsewhere around the world. · First and

foremost, it would help to reduce any financial problems students have to face with. It would

equip young people - students and non-students alike, with the good skills and practices,

knowledge and confidence they need to make financial decisions. Students will know and

understand what they must do (the ways to save) and what purpose of their savings.

Secondly, parents also would benefit from this research as this will help to improve their

thinking that it is very important for them to plan and to save for their children education. It

also would help parents to encourage their children to start saving at a young age. Besides

that, this research provides parents with easy to understand information about how to save

and the benefits of saving for college.

The government also can benefited from this research. When students have good savings

practices means that they can manage their money wisely and they can make better decision

about their daily expenses. Therefore, when students start savings now, they will have good

financi al status in future and thus can repay their loans (PTPTN) on time. The numbers

students blacklisted as they are not able to repay their loans can be reduced. This will be

advantage for government because they can generate income from the loans interest thus, the

government can provide loans and scholarship to more students in future. As a result, more

students able to continue their studies.

15

 CHAPTER 2

LITERATURE REVIEW

2.1 Factors Influencing Students to Save

2.1.1 Financial Knowledge

One of the articles which has attracted researcher's attention is a term paper written

by Mohamad Fazli Sabri and Maurice MacDonald (2010) entitled "Savings Behavior

and Financial Problems Among College Students: The Role of Financial Literacy in

Malaysia". They demonstrate that students who had higher financial knowledge were

more likely to report savings behaviour and also reported fewer financial problems.

According to them, students with financial knowledge promote better financial

management whether or not they can afford to indulge themselves during the college

years. The study done by Cunningham, 2001; Nellie, 2002 point out those students

entering their university education without ever having been responsible for their own

personal finances. While in the college or university students have to manage their

own expenditures. Student's ability to manage their financial resources is very

important for everyday life activities. Financially educated people are able to make

better decision, thus lead to higher financial security (Hilgert and Hogarth, 2003).

Recent studies are mostly focus on the financial planning of university students

because many of them fail to plan their expenditure and unexpectedly experience

financial problems. While many worries of the importance of financial education,

Brennan and Ritters (2004) indicated that, financial education plays a key role in

financial empowerment. Many researchers have suggested that a lack of financial

knowledge and skills results in students' experiencing financial problems. Norvilities

et al. (2006) and Hilgert and Hogart (2003) indicated that, financial knowledge is one

16

 of the strongest predictor of financial behaviour among university students. Financial

education or knowledge should be based on the needs, interests, and abilities of each

student. Clearly, more financial education is needed for young adults to better the

economy.

2.1.2 Parents' responsibilities

Researchers have conducted studies on the parental role of a child's financial

education. The trend in research demonstrates that a child's most significant source of

financial knowledge comes from their family. Danes, Sharon M. (1994), points out

that parent plays an essential role in transferring knowledge of the realistic and

sensitive aspects of money. Young people experience difficulty in practising good

financial guidance. In addition, many parents thought that they can influence or

encourage their children spending habits due to peer influence. The family is the

source for most of a child's financial knowledge and provide the most deep-seated

education. Clarke, et al. (2005) found that the poor financial habits of parents

commonly present themselves in their children's lives. He added parents have the

responsibility to guide and educate their children to create and maintain on mature

responsibilities and tasks. Some parents may not feel comfortable with their own

financial situation therefore it may be difficult for them to talk about the matter with

their children. Children watch and model their parental figures. If more parents could

factually educate their children about finance, children may be less likely to develop

poor habits. Parents can help children become effective money managers and

responsible buyers by teaching them money management skills from an early age. It is

suggested by Clarke, et al. (2005), young adults feel more equipped to manage their

17

,.
 own financial responsibilities if they received a good education on the subject at

home, thus it shows that the best educations starts at home.

2.2 Theory of savings behaviour

2.2.1 Effect of Financial Management on Saving Behaviour and Financial Problem:

Financial management refers to a set of behaviours related to cash management, credit

management, financial planning, investments, insurance and retirement and estate

planning (Parotta & Johnson, 1998). Previous studies have found that individual

positive financial management practices have been the single most influential

detenninant of household solvency status and financial satisfaction (Joo & Grable,

2004; Parotta & Johnson, 1998).

Personal financial problem are mostly cited as a caused of workplace troubles. Low

salary, overspending, heavy debts, spending behaviour and lack of knowledge about

money are the main causes of people (employees) financial problems. In 2004, there

were 16,251 consumer bankruptcies were filed, which increased up to 32% (12,351 in

2003) from the previous year (Malaysian Central Bank, 2005). Sporakowski (1979)

argued that financial problems cause stress and crisis. Not only the poor worried about

the financial problems, but also the middle and high income people are no exception.

It is not the high salary can guarantee people not having the financial problems but it

is their financial management.

18

.1
 In terms of previous literature, financial management practices were the most

significant determinant of financial problems. Better financial management practices

lead to lower levels of financial problems and higher levels of financial satisfaction.

2.2.2 Income and Saving Behaviour

Saving behaviour occurs when current income exceeds current consumption and

therefore when total resources increase. Not saving is the opposite of saving. Saving

leads to asset accumulation as long as saving is greater than not saving. People might

simply make deposits immediately after receiving income, before making any other

purchases or payments. As the cost of living are getting high, people face with income

instability and people (especially workers' debt) is increasing and it is getting hard to

find employment opportunities, deficient savings increased anxiety among moderate

and low-income household (Cho, 2009). This phenomenon has concerned consumers

of the adequacy of their savings, which could cause their saving rate declined over

time. One study conducted by The Pew Research Center (2007) found that almost

80% of Americans always try to save; however, 63% responded they do not save

enough. While, Hurd and Zissimopolous (2000) reported that about 70% of

respondents saved too little within the past 20 to 30 years. Low-income people

(household) tend to have low saving rate which could lead to health problems.

Shefrin and TIlaler (1988; 1992;Thaler, 1990; Thaler & Shefrin, 1981) proposed the

behavioural life-cycle hypothesis that is the most well-developed theoretical

framework related to saving. They stress that individuals are tempted to spend and

that saving requires effort and self-control. Low-income people or families are

19
 consuming less than high-income people and thus have higher marginal utility of

consumption (Chiteji & Hamilton, 2000; Edin & Lein, 1997).

In a second proposition of the behavioural life-cycle hypothesis, Shefrin and Thaler

said that the source and the amount of resources received largely determine whether

resources are earmarked as spending money or assets.

2.3 Sources of Money for Saving

2.3.1 Scholarship and Education Loans

Scholarship and education loan are the major sources of money that student have. An

education loan, The National Higher Education Fund Corporation loan (PTPTN) is

the major ource of financing for tertiary education in Malaysia. The availability of

this loan since 1997 has enabled more students to pursue higher education.

By 2000, the government extended the loans to students attending public universities

as well. Between 1997 and 2005, the NHFEC loaned RM 15.1 billion to almost

800,000 students (World Bank 2007).

The most important issue facing the loan program is financial sustainability. In

general, payment compliance has been low and the Treasury has cut its budget

transfers to NHEFC in recent years, which has caused the agency to borrow at very

high interest rates. NHEFC reports that it recovers only 25 percent of what it should

be recovering. In addition, a large imbalance between new loans and repayments can

be seen in Table 1.

20

 Year Loan Of Borrowed Amount Repaid

Beneficiaries Graduates Amounts (RM (RM million)
I
I Making million)
Payments
2000 94,050 9,059 2,248.2 .3
2001 110,644 17,634 2,042.8 6.8
2002 105,077 43,343 1,759.0 j 7.3
2003 112,621 79,338 1,964.4 34.6
2004 119,111 61,011 2,406.6 44
2005 144,459 N/A N/A N/A
Total I N/A N/A N/A
I

Figure 2.1 Loans availability to students from2000 to 2005 Source: World Bank,
2007

On February 2013, Prime Minister Datuk Seri Najib Razak had launched the Skim

Prihatin Pendidikan IMalaysia (SPPIM) to assist students at the tertiary level obtain

additional study loans. The SPPIM loan acts as a top-up to the existing PTPTN loan

for students pursuing their bachelor's degree or master's in certain fields.

Scholarships and education loans axe becoming more important than ever before.

Besides that, the cost of college is increasing and college savings can be the first thing

to go.

2.3.2 Allowances

An allowance should be a specific amount of money, decided by both the student and

parent, and given at a specific time, such as weekly or monthly. As student's age

increase, they will probably have more money under their control and become more

responsible for their personal spending. Also they tend to appreciate more the goods

and services they buy with their own money, especially if they have saved for them

21

 over a period of time. An allowance can help eliminate the problem of parents having

to say uno" when their children ask for money regularly. It is an important tool for

teaching money management skills of how students manage their own money based

on their needs, wants and goals. Students should have control over how the

allowances is spent or saved. Parents can encourage their children to make carefu1

spending decisions and plan the use of their money. An allowance can help make

students independent and give them confidence and self-discipline in handling money.

2.4 Purpose of Savings

2.4.1 Emergency times

Saving money for an emergency fund is important for everyone at all times . Having a

savings account for emergencies can prevent financial disaster in the event of

student's unemployment after graduate. An emergency fund can come in handy any

time students experience a shortage in income or an increase in expenses. An

emergency fund can also help students avoid using their credit cards or incurring debt

to pay for emergencies that arise. Dave Ramsey, an outspoken radio talk show and

television show host who teaches a course called Financial Peace University, suggest

on his website Dave Ramsey.com, that people should have a starter emergency fund

of $1000.00. Ramsey suggests this serve as emergency fund until they have paid off

all of their high interest credit card debt, at which they should begin building a full

savings account for emergencies.

There was a survey done by Varcoe (1990) for 934 households in California regarding

methods for meeting unexpected expenses or emergency expenses. He found that they

use regular savings; 22 percent used emergency savings; 14 percent borrowed money

from a financial institution; and 8 percent borrowed from friends or family. Therefore

22
 saving now or saving earlier can certainly be a good starting point and can help

student cope with those minor emergencies that crop up in day-to-day life. Building

an emergency fund for unexpected needs is important.

2.4.2 Savings for Education

College costs are ridiculously expensive, and getting more expensive every year as

the rate of tuition costs increases at a faster rate. According to the Bureau of labor

Statistics, the tuition component of the Consumer Price Index (CPI) increased by 8%

per year, on average, from 1979 to 2001. This means that children born today will

face college costs that are 3 to 4 times current prices by the time they matriculate. A

poll by AllianceBernstein Investment, Inc. found that 42% of students who graduated

with debt described themselves as living paycheck to paycheck, compared with 24%

for those who graduated without debt. 22% of those with debt said that finances

limited their college choices. 76% reported worrying about money in college. 42% of

those with debt said that college jobs affected grades, compared with 30% for those

without debt. The poll was conducted on the Internet of 1,508 college graduates ages

21-35 between April 24 and May 1 by Matthew Greenwald & Associates, Inc. 1,007

of respondents graduated college with some debt, 501 graduated with no debt. Survey

results were reweighted to be representative of the education, age and gender

distribution of the US College graduated population.

23

2.4.3 Savings for Retirement

For an elderly living in a country with mandatory retirement, it means no earned

income flowing into the family, except for those with pension. As Malaysia is going

to achieve develop nation status by 2020, it is also facing challenges of being an aged

nation which means the elderly would have limited financial resources with the

increased longevity. The financial resources will influence their purchasing power and

well-being. The financial behaviouT during younger age affects the financial practices

of the elderly. Therefore, good financial practices during younger age lead to financial

well-being in old age. Good financial practices during younger years can be a factor

to ensure financial independence or security in old age since one of the recommended

financial goals is savings for old age (Garmen and Fougue, 2004; Kapoor, Dlabay, &

Huges, 2004).

Individuals are responsible for their own financial security after retirement. The

biggest concerns people have to face is that they have to decide not only how much to

save for retirement but also how to allocate their pension wealth. Prawitz et a1. (2006),

point out that many of those near retirement still in fund shortage needed for a

comfortable life which cause millions people struggle financially. People have less

ability to save and to secure a comfortable retirement if they have low financial

literacy and lack of financial information. Additionally, lack of understanding about

financial concepts would relate to lack of retirement planning and lack of wealth.

The thought of IRA's, 401K's, pension plans and social security may appear

incredibly irrelevant to college students who have yet to begin their careers; however,

even with uncertainty in the job market and economy in general, experts say investing

in a retirement plan now has its advantages, especiaUy for this generation. Economic

24